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Innovation Depression Strikes

Posted by: Bruce Nussbaum on April 14, 2009

I’m getting innovation depression. The new list of 25 Most Innovative Companies by BusinessWeek and BCG is out and spending on innovation is down. Despite all the evidence showing that companies that invest in innovation in economic downturns gain competitive advantage in economic recoveries, most corporations are cutting back on R&D and other innovation investments for short-term cost-cutting gains. It’s sad.

Even sadder is the same list of companies year-in-and-year-out on the list. Apple, Google, Toyota, Microsoft, Nintendo at the top, IBM (up to #6 from #12 in 2008), HP (up to #7 from #15 last year), RIM, Nokia, Wal-Mart, Amazon, P&G, etc. Tata, Sony, Vodafone, Honda, Samsung, VW, Reliance Industries are in the Top 25.

Any new names you haven’t heard of? There are thousands of public companies in the US, Europe and Asia—where are they are on this list?
There few new-comers.

Mike Mandel, chief economist of Business Week, gave an insightful speech on the failure of innovation at my Design-At-The-Edge class at Parsons School of Design last week.

Mike showed that aside from financial innovation, most industries have not innovated very much over the past decade. We are blinded by the success stories of the same dozen or two dozen companies and forget about the failures of the thousands of others. Whole promising markets, such as genomic medicine have proven terribly disappointing. Alternative energy also disappointing. Nuclear energy, disappointing, according to Mike.

This failure of innovation in the US has undermined long-term economic growth and led to the current financial and economic crisis. The wealth of the past decade has been faux--borrowed. Except for the wealth generated in the financial sector, which doubled in size as a percentage of GDP, there really hasn't been much at all.

Wow. We need to think about this. If Mike is right, if there has been very little aggregate innovation over the past decade, then--WHY? Have the obvious innovations in social media, iPhone platform, etc., not spread throughout the economy and remained narrowly limited in age cohorts? Is innovation diffusion too slow because designers focus on their own friends and not others? Is innovation too hard for most companies--or are CEOs and managers just too untrained and inflexible to change their conventional behaviors--and the cultures of their organizations?

Which is it?

Reader Comments

Pete Mortensen

April 16, 2009 6:02 PM

The absence of new players in the top 50 most innovative companies is largely to be expected -- it's built into the methodology. When you ask top executives who is innovative, they'll tend to name other companies on their radars -- which tend to be the familiar big names with rock star CEOs.

There's ample innovation happening right now, but the fact that your pool put several car companies on the list -- and many oil companies -- and didn't talk about Better Place is a perfect example of not looking beyond their current spheres. Better Place is building electrical fueling stations and infrastructure around the world to support 100,000 electric car sales in 2010. They're doing this today.

If there's a culprit here, perhaps it's an over-fascination with novelty and shell games -- the kind of innovation that blows away at the first hint of trouble, or that fails to make an impact in the first place. If you want to innovate, find out what people really need and then give it to them. That's the equation for value creation.

But a lot of companies instead make decisions on PowerPoint -- they're disconnected from the reality of their business and the lives of the people they serve. The companies that innovate consistently over time are those that create a widespread sense of empathy for people outside of their walls. They can intuit their future needs while adding value to existing offerings in the mean time.

Innovation isn't just about design or about R&D. It's about making the connection between your capabilities and the needs of people in the world. If you do that, you can make a whole lot of money, and make things better for all of us. Inflexible cultures change. And it all starts with getting outside your walls to see life through the eyes of others.

Jim Meredith

April 17, 2009 2:00 PM

I wonder, Bruce, if most of our "innovation" pursuits have followed the dominant values of the past decade---the "faux" wealth you reference---instead of looking into the next decade. That is, when allocations were made for innovation spending, have they been mostly with the influence of what appeared to be the path to massive and rapid wealth generation? I'd like to see a genealogical chart of innovation over the past decade---where did it go---and was it sustainable---will the "innovations" it funded survive the more critical lens we are all using these days to find, select, and prize that which is substantial and authentic.

James Todhunter

April 17, 2009 10:37 PM

Although your concern that economic pressure could cause many companies to cut back on innovation is well founded, there is a correction needed to your post.

Whereas you have stated that most companies are pulling back on R&D spend, the BCG Innovation 2009 report, which you cite, states that 58% of companies in the survey are planning on increasing spending on innovation in the coming year. The report identifies that only 14% of the companies are in fact pulling back on their innovation spend.

Companies may be reducing over all costs, but most do understand that this is exactly the wrong time to put the brakes on innovation. It is at times when the rules of the game are in flux that the opportunity for innovation is at it highest. As the authors of the report put it: "Companies that win with innovation see the downturn as a chance to re-create thier industry--on thier own terms."

RitaSue Siegel

April 26, 2009 12:19 AM

Most corporations are not cutting spending on r&d, a component of innovation spend, see Wall Street Journal APRIL 6, 2009, R&D Spending Holds Steady in Slump,Big Companies Invest to Grab Sales in Recovery; the iPod Lesson,By JUSTIN SCHECK and PAUL GLADER. Also, in the survey my company has just done, our clients have NOT cut investment in design, an integral part of innovation as you know; senior management understands that design is critical to innovation and that design is not solely focused on product differentiation which used to be the simplistic answer to questions of why design is important.

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Want to stop talking about innovation and learn how to make it work for you? Bruce Nussbaum takes you deep into the latest thinking about innovation and design with daily scoops, provocative perspectives and case studies. Nussbaum is at the center of a global conversation on the growing discipline of innovation and the deepening field of design thinking. Read him to discover what social networking works—and what doesn’t. Discover where service innovation is going and how experience design is shaping up. Learn which schools are graduating the most creative talent and which consulting firms are the hottest. And get his take on what the smartest companies are doing in the U.S., Asia and Europe, far ahead of the pack.

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